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What is a “material fact” under the REDMA: British Columbia Supreme Court puts onus on purchasers

The last issue of Real Estate MATTERS (Vol. 3, Issue 1) addressed the recent British Columbia Supreme Court (BCSC) decision in Bosa Properties (Edgemont) Inc. v. Ban. In that case, the BCSC held that the acceleration of a completion date did not necessarily constitute a "material fact" under the Real Estate Development Marketing Act (REDMA) requiring the filing and delivery of a disclosure statement amendment.

In July 2012, the BCSC rendered another important decision, with potentially even broader application, about the interpretation of what constitutes a "material fact" under the REDMA.

In Bosa Properties (Esprit 2) Inc. v. Kim, the first decision to apply the British Columbia Court of Appeal’s recent decision in 299 Burrard Residential Limited Partnership v. Essalat (also discussed in Vol. 3, Issue 1 of Real Estate MATTERS), the purchasers of two townhouses argued that their purchase contracts were not enforceable because the developer failed to amend the disclosure statement to explain that the heating for their units had been changed from a central gas-fired hot water system to individual in-suite electric hot water tanks. The BCSC held that the developer had not breached the REDMA and, in doing so, made the following statements of general application that are helpful for developers:

The test for what constitutes a "material fact" under the REDMA is objective, and a purchaser’s subjective view of what is material is therefore not admissible on the question of whether there was a misrepresentation by the developer.

Language in the developer’s information sheet and in the purchase contracts specifying the developer’s right to make minor modifications or substitutions to the building design and to the features and layout of the strata lot (including electrical, plumbing and mechanical systems), which evidenced that the purchasers should have been aware that the hot water system was subject to change, is relevant in assessing whether the change was a "material fact."

The fact that the purchasers led no independent objective evidence as to whether the change would affect the value, price or use of the townhouses was critical, as the BCSC found that the non-expert evidence of the purchasers on this topic was unpersuasive.

The BCSC rejected the subjective evidence of the purchasers regarding the significance of the change and concluded that the real reason they did not complete was the significant drop in real estate values associated with the global economic downturn in 2009.

Although the evidence suggested that the change in hot water delivery increased the operating costs of the units somewhat, the BCSC was not persuaded that the purchasers had demonstrated that the increase was of such significance that it affected the value or price of the units.

The BCSC has put the onus squarely on purchasers to establish objectively (likely by way of independent expert evidence) that an undisclosed change has affected the value, price or use of their units such that they should be released from their contracts. In so doing, the BCSC has brought some welcome clarity to an area of law that is in dire need of it.

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